Loan Guarantee Structuring

Acting as a guarantor for a friend or family member can be risky as it can place you in an awkward situation now or in the future. If deciding to proceed, you should at least structure the deal so that you may exit the deal as soon as possible and as gracefully as possible. You can achieve this by structuring the deal intelligently.

For instance, though every deal is different to each individual, it may be prudent to organise split loans as follows in a standard type of real estate purchase:-

  1. One split portion for 20% of the security value plus stamp duty and other purchase costs. This split loan would represent the guarantor’s input into the deal, and the idea is that this loan be paid off as quickly as possible to allow the guarantor to exit ASAP.
  2. The other split portion of the loan would be for 80% of the security value. This would avoid LMI Insurance for the borrower and is what the borrower would be left with after the guarantor exits. Also, IF the property value increases, achieving this 80% is accelerated.

Often, a solicitor’s certificate is also required to be provided by the Guarantor. A solicitor’s certificate is essentially a certificate showing that you have sat down with a solicitor and had the risks of being a guarantor explained to you.

Prompt Legal Services can further explain all of the above when relating to Real Estate purchases and assist you with your solicitors’ certificate. Call us on (03 9379 0877) and ask for Daniel.

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